The One-Two Punch

Throughout recent months, the once robust construction market has taken quite a beating, and not far behind it, aggregate producers who supply the essential ingredient in nearly every type of construction.

At the heart of the maelstrom is one of the worst housing crises in decades. As Daryl Delano regularly reports in our “Economic Outlook” section, the housing market throughout 2007 and 2008 could be characterized as weak and weaker (see page 16). Commercial and public works construction initially propped up the flagging residential sector, but they, too, have shown signs of deterioration. Of specific importance to aggregate producers have been ongoing concerns about transportation funding, in general, and the solvency of the Highway Trust Fund (HTF), in particular. At Aggregates Manager press time, the HTF was poised to run out of money at the end of September.

Throughout much of the last year, the saving grace for the profit and loss statements of many aggregates companies has been their ability to combat decreased demand with increased prices. In early September, however, not one, but two events may signal an eventual turnaround to the construction market.

First, Secretary of Transportation Mary Peters reversed the Department of Transportation’s previous opposition to Congressional plans to make the HTF solvent when she announced that she supported an immediate fix of the HTF. The House and the Senate have now approved legislation that would prevent the short-term insolvency of the HTF by crediting it for $8 billion in highway revenue that was transferred to the general fund in 1998. At Aggregates Manager press time, the legislation was awaiting President Bush’s signature. Although it is merely an opening salvo to next year’s battle for transportation reauthorization, the bipartisan support for this initiative indicates that Congress may understand the significance of infrastructure investment to the nation’s economy.

Next, the Bush administration seized control of the nation’s two largest mortgage finance companies – Fannie Mae and Freddie Mac – in a maneuver The New York Times called “an extraordinary federal intervention in private enterprise.” Together, the two companies either hold or guarantee approximately half of the nation’s mortgages. Although a July estimate from the Congressional Budget Office ballparked the bailout’s price tag at $25 billion, the takeover was hailed as the first step toward restoring stability to the financial market. Within days of the news, 30-year mortgage rates dropped dramatically and a ray of hope for the housing market began to shine.

Although stock market woes continue, the federal government is clearly taking aggressive steps to stimulate an economic turnaround. Hopefully, the one-two punch of infrastructure investment and greater stability in the residential mortgage market will reverberate throughout the aggregates industry.